Indonesia allows IPPs to supply power to customers in remote areas

Indonesia’s power sector that is dominated by state power company Perusahaan Listrik Negara (PLN), will open-up soon. In a ministerial decree, Energy and Mineral Resources Ministry has approved to allow independent power producers (IPP) to sell their power directly to customers, particularly in remote areas or regions that are not serviced by PLN. The move is likely to end the monopoly of PLN in the power sector.

The decree now awaits ratification from the Ministry of Justice and Human Rights.

IPPs will be allowed to build their own plants, distribute power and also take care of their own costs.

The move will be a boost to renewable power as the smaller IPPs that produce renewable and fossil fuel power, can operate in 2,500 villages across the country which have not been connected to PLN’s power grid.

Prior to this regulation, IPPs were allowed to sell its power to PLN only. The process was marred with lengthy negotiations that often made these small-scale projects unfeasible.

PLN is expected to concentrate on more large-scale projects to support the government’s target of adding 35,000 MW to the country’s power grid by 2019.

One possible challenge for the small scale IPPs is that the electricity produced might be expensive and households might not be able to afford it.

Estimates show that as much as $8 billion might be needed to provide electrification in remote areas. This figure is much higher than PLN’s average base cost of Rp 1,352 (1 US cent) per kilowatt hour. The government might have to step in to subsidize the private sector to address this problem.

More on Indonesia’s power sector developments will be discussed at CMT’s Indonesia Renewable Power on 27 February- 1 March, 2017 in Jakarta.

For more information about the event, contact Ms. Grace Oh at grace@cmtsp.com.sg or call +65 6346 9147.